Alphabet (NASDAQ:GOOGL) Stock Rockets on AI Momentum, Cloud Growth — 14% Undervalued

NASDAQ:GOOGL Q2 2025 Results Showcase Deepening AI Moat and Cloud Momentum

Alphabet Inc. (NASDAQ:GOOGL) surged past Wall Street expectations in Q2 2025 with revenue hitting $96.43 billion, up 14% year-over-year, and normalized EPS climbing 22% to $2.31. Search, Cloud, and YouTube all posted standout performances. But behind these headline numbers, GOOGL's strategic pivot into generative AI, autonomous systems, and high-efficiency infrastructure is materially reshaping its long-term cash flow trajectory.

Search and YouTube Drive Robust Advertising Growth for NASDAQ:GOOGL

Despite fears of AI search disruption, NASDAQ:GOOGL grew Search revenue by double digits and YouTube ad sales by 13% to $9.8 billion. YouTube remains the second-largest search engine globally, supported by 2.7 billion monthly users and 500 hours of content uploaded per minute. YouTube Premium added to this momentum with a $17 billion annual run-rate across 125 million subscribers. When combined with ads, YouTube remains an unmatched monetization engine.

Alphabet’s ad infrastructure is evolving. The firm is embedding AI-driven ads within Search Overviews, shifting advertisers from manual targeting to conversion-optimized campaigns like Performance Max. Cost-per-click rates rose 12.88% in 2024, highlighting ad pricing power. The company’s push to boost mobile-first and location-based monetization—especially in Maps and Shopping—amplifies its hold over retail, travel, and local services.

NASDAQ:GOOGL Cloud Scaling Profitably, Capturing AI Enterprise Demand

Cloud revenue soared 32% year-over-year to $13.62 billion, driven by accelerating demand for AI computing services. Google Cloud is gaining traction with enterprise clients including Spotify, NBCUniversal, and Target through its Vertex AI, AutoML, and enterprise-grade API solutions. The segment reached a 17% operating margin in Q1 2025, and although it trails AWS and Azure on scale, it continues to expand market share from 9% to 11%.

The company has guided toward $85 billion in CAPEX for 2025, largely aimed at data centers and AI infrastructure. This 70% YoY increase led to a dramatic 61% drop in free cash flow to $5.3 billion in Q2, a near-term drag that could persist. However, Alphabet’s $100+ billion cash war chest allows aggressive reinvestment without immediate liquidity risk.

Insider Confidence in NASDAQ:GOOGL Reinforced by Buybacks and Ownership Structure

In Q2, Alphabet returned $13.64 billion via share repurchases and $2.54 billion in dividends. Insider conviction remains strong, with notable ownership by investment legends like Bill Ackman, Li Lu, and Seth Klarman. Review full insider activity at GOOGL insider transactions.

These returns remain elevated despite the CAPEX spike. Alphabet reduced share count by 2.5% in the past year, offsetting the $20+ billion in annual stock-based compensation. The buyback program, backed by $73 billion in free cash flow in 2024, underlines long-term management conviction that GOOGL is undervalued.

Valuation: NASDAQ:GOOGL Still Undervalued by SOTP and Future Cash Flow Models

Using a conservative 5-year sales CAGR of 10% and 20x FCF exit multiple, NASDAQ:GOOGL has a projected price of $327, representing an 11.5% CAGR from today’s $190. But a deeper sum-of-the-parts (SOTP) valuation paints a stronger picture:

• Google Search: $203B revenue, 40% margin, 20x multiple = ~$1.62T EV

• YouTube Ads: $37B revenue, 25% margin, 20x multiple = ~$185B EV

• Google Cloud: $40B run-rate, 20% margin, 30x multiple = ~$240B EV

• Subscriptions & Devices (e.g., YouTube Premium, Pixel): $41B revenue, 30% margin, 30x multiple = ~$369B EV

• AdSense/Network: $30B revenue, 20% margin, 10x multiple = ~$60B EV

This totals to over $2.6 trillion in enterprise value, or $217 per share, implying a 14% upside excluding Waymo, which was most recently valued near $45B. Google’s refusal to break out segment-level operating income continues to cloud true margin visibility and may be depressing valuation multiples unfairly.

Technical View: NASDAQ:GOOGL Faces Near-Term Resistance But Bullish Longer-Term

Technically, GOOGL has rallied into a rising channel, currently near $190 with resistance around $205. RSI divergence and a potential Head & Shoulders pattern warn of a possible retracement toward $160. Yet, broader trendlines and Elliott Wave Theory suggest a wave-five target as high as $210, aligning with fundamental momentum. Staggered accumulation is prudent given volatility.

AI Arms Race: Gemini, TPU Chips, and Search Reinvention at NASDAQ:GOOGL

Google is not outsourcing its AI backbone to OpenAI or Anthropic. It’s betting big on Gemini and its proprietary Tensor Processing Units (TPUs), which powered Gemini 1.5 training instead of NVIDIA GPUs. This strategic chip independence matters: AI Search queries are up to 7x more compute-intensive, and TPU adoption may help defend margin as demand for AI Overviews scales.

AI-Overviews already serve 1.5 billion users monthly. Embedded monetization is next, with Google transitioning from click-driven revenue to CPC-boosting AI-driven conversion flows. Search monetization might compress short term, but as Google retrains advertisers toward new bidding models and AI-first surfaces, long-term revenue resilience is likely.

Waymo: A Hidden Call Option Embedded in NASDAQ:GOOGL

Waymo completed 10 million paid rides as of mid-2025, with operations in Phoenix and California. Its ride volume is on pace to quadruple YoY, and unit economics are favorable: <$1/mile cost versus $2+ for traditional ride-hailing. Valued at ~$45B, with Google holding ~80%, Waymo remains absent from Street models yet continues to scale.

This autonomous segment offers asymmetric upside. Even if monetization is delayed, Waymo’s training data advantage from over 200 million driven miles gives it a moat few can replicate. Competitors like Tesla may lead in driver-assist, but fully autonomous, regulator-approved fleets favor Waymo’s structured rollout.

Risks: AI Margin Pressure, Regulatory Fines, and Market Share Leakage

Free cash flow headwinds from AI infra investments are real. $85B in CAPEX for 2025 won’t generate immediate returns. Moreover, Google faces pressure from antitrust regulators, particularly in the U.S. and Europe. The September 2024 EU fine and U.S. court ruling questioning default search engine deals could force changes to distribution models.

Meanwhile, AI-powered competitors like ChatGPT and Perplexity are eroding ~6% of market share, according to Wells Fargo. Each 1% drop in Search share equals ~$2B revenue lost. If Google drops to 80% share, the topline impact could exceed $24 billion, partially offset by Cloud and Subscriptions growth.

Yet regulators face their own tension: weakening Alphabet weakens U.S. AI dominance. A Microsoft-style outcome (e.g., API/data sharing mandates) is far more likely than breakups. Still, litigation may delay capital deployment or elevate compliance costs.

Verdict: NASDAQ:GOOGL Is a Buy, But Accumulate Strategically

Despite short-term FCF compression and technical volatility, NASDAQ:GOOGL remains fundamentally robust, multi-segmented, and structurally underpriced. At $190, the stock trades at an unfair discount to big tech peers. With a 5-year return potential of 11.5% CAGR based on FCF modeling, and SOTP valuation indicating 14% upside, GOOGL is a Buy.

Given potential retracement to $160 due to RSI and H&S pattern setups, staggered accumulation is the optimal approach over the next 6–12 months. AI monetization, Cloud profitability, and autonomous upside all add layered optionality. In one sentence: Alphabet is mispriced, misunderstood, and built to compound.

That's TradingNEWS